Reports: Treasury to lend GMAC more money

Thursday, May 21, 2009

Associated Press

NEW YORK -- The Treasury Department is set to inject billions more dollars into GMAC Financial Services, according to media reports.

The Wall Street Journal said the Treasury Department will lend GMAC more than $7 billion, a step towards making the company a quasi-federal entity with the power to offer low-interest loans to would-be buyers of GM and Chrysler cars. The Detroit News put the amount at $7.5 billion.

The move comes after GMAC failed a bank "stress test" earlier this month, and the Treasury mandated that the company raise $11.5 billion within six months. GMAC already received $5 billion from the Troubled Asset Relief Program in December after the government approved its application to become a bank. In exchange for the funding, the government received 5 million GMAC shares.

The additional funding gives the Treasury more control over GMAC, and it has already told the General Motors Corp. financing arm that it must extend its financing services to bankrupt Chrysler LLC.

GMAC, which reported a first-quarter loss of $675 million, said earlier this month it has seen rising defaults in its auto finance division. That, combined with soured assets in its Residential Capital LLC mortgage unit, makes it more difficult for the company to raise the additional capital in the public markets.

It is unclear what additional mandates the government will impose on GMAC.

Analysts suggest the infusion, along with the merger of Chrysler's financial arm would make GMAC a lending powerhouse that would give GM and Chrysler a huge advantage over their competitors -- including Ford Motor Co., which hasn't taken any aid from the government. A U.S.-controlled GMAC would have the power to offer better loan terms to buyers of GM and Chrysler cars and trucks as a way of steering business to the troubled automakers.

The banking arm of GMAC changed its name to Ally Bank last week, in an effort to repair its tarnished image and attract customers.